How to Save Money for a House

Your own house is possibly the most expensive asset most people will ever own, but before you will be able to own a house you will need to know how to save money for a house. After all, since the GFC the banks aren’t handing out 100% loans any more and so it is important that you know how to save money and work out exactly what you are looking for.

Our House

I did a 4 part post a while back on my wife’s and my experience with building a house. It was our first house and we made quite a few mistakes along the way. I guess making mistakes is part of the fun of growing up and learning, but we were lucky that we didn’t stumble across any super expensive problems.

For our house I had a budget and payment timeline planned for all the mortgage debt we were taking on. It turns out that despite my best estimating abilities not everything went to plan. To start with, interest rates bounced around like a yo yo, first going up towards 9.5% and then going down into the mid 4% range thanks to the GFC. My wife and I got married, which cost a small fortune, we spent $5000 on a dog with bad elbows and we recently had a son. The list could go on for quite a while but the point is that all these things cost money.

What I am trying to say is that life will likely get in the way of even the best laid plans and so you need to factor in “life” when it comes to planning for a house.

What can you afford?

The biggest question that you should be asking yourself when it comes to how to save money for a house is – What is my budget, how much am I willing to spend on a property? Remember that no matter what you think your maximum is, your bank might have a different idea. My advice is to go see your bank before shopping for a house. The reason for this is that the bank will tell you exactly how much they are willing to lend you and then you can go looking at houses in your price range.

There is nothing more disappointing than checking out really nice houses and getting a certain level of expectations, only to have them dashed by the bank manager. You are best off starting small and working your way up.

Once the bank manager tells you what they will lend you, you then need to decide if you really want to spend that much. Between you and your spouse you then need to consider how much of your weekly pay packet you feel that you can put towards servicing a loan. Remembering that every single dollar you borrow needs to be paid back with interest. My personal opinion on mortgage debt is that you should try to spend as small of an amount as possible on a house, and to make sure you can make as many additional repayments into the loan as possible. This way you will be able to reduce your debt a lot faster.

If you want to get an idea about repayments then there are mortgage calculators available that might come in handy.

Where do you want to live?

Working out where you want to live versus where you can afford to live also needs to be carefully considered. As an example – I would love to live by the beach, but the cost of me getting to work would sky rocket as I would be travelling far more and I would also be a lot more time poor. I could always get a different job somewhere a little closer to the beach, but there is no guarantee that I would land a job and even if I did, it might not pay as much as I get now.

Remember than no matter where you live there will be costs associated with that choice. It might be more fuel for the car, public transport costs and I have even heard of groceries being more expensive depending on where you live. If you live in a gated community, town house or a unit then you might also have body corporate fees that need to be paid. All of these things need to be taken into consideration prior to buying a house.

Saving Money for a Down Payment

Something many people don’t consider is that the bigger the down payment that you can produce, the better off you are going to be. If you can manage to save up a decent down payment then you will not have to borrow as much and you will likely pay less on mortgage insurance. You will also be a more attractive proposition for a bank to take you on and you might be able to negotiate a better deal on any mortgage.

I personally believe that you should practice paying the same amount you are expecting to pay into your mortgage into a down payment account. That way you will be saving money as a deposit for your house, and you will get used to the amount of money that you will eventually have to end up paying back to the bank. This enables you to adjust your standard of living to fit in with your debt repayments so you won’t get a nasty shock when it comes time to start paying the bank.

Related Posts

I couldn’t agree more – anyone who says ‘I can’t save enough for a deposit’ I tend to think (internally) ‘well if you can’t afford to put away that much a week/fortnight/month, you won’t be able to afford the repayments!’. The down payment savings is the best discipline to prepare for a mortgage!

I found out today that the bank would (theoretically) give me and the BF 1.8 MILLION DOLLARS! We’re both under 30 – it just seems obscene. Let me assure, my mortgage isn’t near that! And it wouldn’t be at this stage! I can’t believe you built – I think I’m too chicken to try that, though I would love to have things ‘exactly as I like them’.SarahN recently posted..Waste Wednesday update

1.8 million is insane! It was an interesting experience building, but not as scary as you might think. I think if I were to do it again we would have a lot less issues because we now know many of the things to look out for.

Being time poor sucks! Unfortunately I feel that I am fairly time poor, as I have to commute to work each day, work on the blog on the side, find time to work out, find time for my wife – I can’t seem to find enough time!

Anyway, this is a great post and it’s definitely important to factor in everything from monthly payments, unexpected expenses that come with home ownership, and definitely WHERE you want to live or where you are willing to live (it’s all about compromise, right?).DC @ Young Adult Money recently posted..How I Conquered $1,000 in Food Bills

Good tips! We are planning on purchasing a house a by March 2015 and my goal is to have all the money saved for it so that we don’t require a loan. Living in Romania has its advantages, as we estimate that we can get a nice house for about $85,000 and if we don’t have all the money (it’s still a big possibility), we should have as much as possible saved up to make our life easier after the purchase.C. the Romanian recently posted..Time to Work with a Five Year Plan!

It is wise to live closer to work if your work is stable, than closer to where you want to be on weekends. If my job changed a lot I would live next to a train station instead, to commute by public transport.Pauline recently posted..Graduate College Debt Free

Saving 20% is my biggest goal. I don’t plan on buying a house where I live because 20% for a decent house would at least be $80,000 and that still would be in the burbs. I know a town in a different area all together with a good job market with affordable houses. Our friends just got a 4 bedroom house for $155,000 there and we’re saving up to follow them.

Also, good point about double checking if you can afford what the bank is willing to offer you. Just because the bank thinks you can afford a $1,600/month mortgage doesn’t mean you can. So many people forget that property taxes, gas/trash/water/electric/sewage, and miscellaneous repair costs can make your monthly payment an additional 20% of the mortgage cost. It’s always best to go under your max monthly payment by a bit so you don’t stretch yourself out financially.Tara @ Streets Ahead Living recently posted..Too much time on my hands

I remember the bank offering me about 100K more than I needed before we bought our current place and so it was good to know that if costs blew out we had the money available, but at the same time there is no way I wanted to be that highly leveraged.

Affordability was an important factor for us when we decided to buy a house. Location-wise, as long as both our commutes were under a half hour each way – we were pretty happy. We ended up buying in a neighbouring city with lower property prices. We could get a bigger house with a finished basement that we could rent out as a mortgage helper if that’s what we wanted to do. The only thing I regret is not saving up more of a down payment, we could have saved a lot if we waited a couple more years.

All excellent points. I would tell anyone buying a house to make sure the payment is way under what you think you can afford, just in case of all those little life events that do come along. That is why so many people lost houses when the economy here tanked. Sadly, I feel like the trend is starting up again as banks are lending more now and there are ways to not put very much money down on a home purchase.

I’ve made mistakes when buying houses in the past. One of the biggest mistakes I made was buying a house that was at the very top end of what my mortgage provider could lend. Things aren’t too bad now because we stuck with our decision but for some time it left us extremely tight with our finances. It’s so tempting to buy something bigger or better but that might not be the right decision financially!

I disagree that the house is an asset. It is more likely a liability, unless you rent it. There fore you should pay down as little as you can and keep it in debt as much as possible and invest all spear money. I understand that this philosophy isn’t for everyone and many will disagree with me, but unless you have cash to buy a house outright, it is then the worst investment ever, so keep it mortgaged, save or invest in higher return investments (and these days, when mortgage rates were around 3.5 – 4.5% it is a great opportunity, to keep the house fully in debt and invest in investments bearing 14% return (i.e. my mortgage rate, 30 years fixed, is 3.5% and just my Lending Club account returns 12.8%).Dividend investing Martin recently posted..Trade adjustment – Kinder Morgan Partnership (KMP) addition

Asset Vs Liabilit. I would wager that most people who have owned their houses for the last 20-30 years would call their house one of the best assets/investments they have. It is all relative to what you paid and what you can now sell it for.

As for worst investment ever – I could give you a few stocks on the ASX that will outperform even the US housing sector when it comes to worst investments, but again, depending on your reasons for getting a house and when you bought it / when you want to sell it – there are definitely worse places to be putting your money.

For me personally – we have almost paid off our house (interest rates in Australia never went below 4%) and it has been a great decision for us and our investment choices. I’m not saying I couldn’t have made better use of that money (i’m sure I could have in the stock or currency markets), but it comes down to risk vs reward. I want to live in my own house and not be at the mercy of 9.5% interest rates again. I want limited liabilities (no debt) and for my wife to not have to go to work if she doesn’t want to now that we have a son. Doing what we did has enabled us to proceed down this path and we are over the moon with our choices.

Like most things in life, it is down to personal preference and your own risk profile.

Glen, I am sorry, but I disagree. Is your house bringing you money into your pocket every month, quarter or year? Or do you have to pay every month, quarter or year to keep it up? If you have to pay (repairs, HOA dues, utilities, etc) then it is not an asset. Period.

If you bought your house as a rental property, then yes, it is an asset and investment, otherwise it is not. If you bought your house to live in it for a while and then sold it and bought another one, or bought it just to flip it, then it is a speculation and not investment.

I am not saying that people didn’t or couldn’t make money on their houses during the last decade(s), but that still doesn’t make a house you live in an asset or investment. It is still a liability and dead money.Dividend investing Martin recently posted..Trade adjustment – Kinder Morgan Partnership (KMP) addition

We planned to pay 20% down on the home but it didnt work out. We were in the process of saving but I found a home in a neighborhood we both really wanted. You know what they say location location location. It doesnt help the we live in Florida where home prices are kinda expensive. If we were in another area we could get a new home built for about 150k. We are stuck with PMI and not too much I think we can do to get out of it at this point. Things happen but at least have some sort of plan. We weren’t PLANNING to pay all of the closing costs but we ended up having to.

Most Popular

Disclaimer

I am not a financial expert. Information published on this website has been prepared for general entertainment / informational purposes only and does not constitute financial advice to any particular person. Any information contained on this web page is general in nature and does not take into account any person’s particular investment objectives, financial situation or individual needs.

Before making an investment decision based on this information you should consider, with or without the assistance of a qualified adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances.

As a result, readers are encouraged to seek professional advice before making any major decisions. www.monsterpiggybank.com or its writers cannot be held liable for any loss or damages that result of advice or tips on www.monsterpiggybank.com.